Soaring premiums, denied benefits, delayed payments show crisis in long-term care insurance

For years, Judith Felker dutifully paid the premiums for long-term care insurance to ease the burden on loved ones if she was eventually incapacitated by dementia, like her mother and grandmother before her.

The $64,000 she spent seemed a wise investment when Felker, 87, had to move last year to a memory care facility in Edina. But getting Transamerica, her insurer, to pay up proved much harder than getting them to take her money. Felker and her life partner, Dan Lundquist, had to hire two attorneys, exhaust savings and sue the insurer. It took 11 months to gain benefits.

“Judy’s claim for coverage [was] met with persistent obstructionism,” Lundquist said.

Felker’s experience reflects what many customers are discovering in a collapsing long-term care insurance market. In the 1980s and 1990s, the industry flourished with promises to finance the care needs for the aging baby boomer generation. But the industry sold policies based on faulty projections and collected far too little money to pay for today’s actual elder-care needs.

Now, 54 companies are managing traditional long-term care plans for about 200,000 Minnesotans. Only three are still selling them. Those still in business are raising premiums, capping benefits and sometimes denying payouts to overcome their deficits. Elderly Minnesotans are struggling to afford the payments and access their benefits.

The Minnesota Department of Commerce has to approve any rise in premiums, but it’s proving impossible for the agency to balance its goals of protecting consumers from massive monthly bills and keeping private insurers in business.

“None of this is good,” said Fred Andersen, a Commerce Department actuary who sympathizes with consumers over rising costs. But “having people’s insurance companies go insolvent isn’t really desirable either,” he added.

The Commerce Department last year made 17 companies lower premium increases beyond their requests, including four companies that wanted to double them. Even after those adjustments, 13 companies raised premiums by at least 25%, and two raised them more than 50%.

Toby Pearson knows the cost of elder care better than most, as executive director of the Care Providers of Minnesota trade group. One year can exceed $60,000 for assisted living and $120,000 in a Minnesota nursing home. But after 10 years of payments, the 58-year-old balked at a 58% increase in his premium.

“Are we better off putting the amount we have into our retirement savings instead of, you know, paying for an insurance policy that’s going to go up so much that I’m not sure it’s worth it?” asked Pearson, who kept his policy, at least this year.

A key miscalculation by insurers: They didn’t anticipate the five-year rise in U.S. life expectancy since 1980, so they underestimated the number of people surviving long enough to need long-term care. Many plans also came with inflation adjustments that exponentially increased the value of their benefits, especially as policyholders outlived projections.

Insurers also overestimated the proportion of policyholders who would cancel their plans. Families became invested after paying premiums for years and calculating the inflation-adjusted benefits, said Brian Emswiler, founder of Long Term Care Insurance Advisors, an Eden Prairie brokerage. “I bet I have had three clients in my 30 years of business drop their policies, and that’s because they went broke, whether it was from gambling or whatever.”

Skyrocketing premiums are testing that resolve. Genworth no longer sells traditional long-term care plans, but remains Minnesota’s largest insurer and manages policies for 31,000 state residents. It sought permission to increase premiums on some of its plans by 110% over the next three years, and received state approval to increase them 71%.

Policyholders can cut premium increases by agreeing to reduced benefits — waiving future inflation growth or capping the dollar amount of benefits or the number of years they can be used.

Charles Purfeerst, 85, of Elk River said he got “stupid lucky” buying a Genworth policy with unlimited benefits in 1999 for his wife, because it has paid $258,000 so far for home health care to help her manage disabling arthritis. He capped the total benefits in his own policy this year, though, because the annual cost had surged from $2,200 to an unaffordable $9,000. Now it costs $4,600.

“I’ll just sell the townhouse,” he said, if future care needs exceed the new limits of his plan.

Denials of benefits are increasingly common as policyholders beset with disabilities or dementia — or adult children taking on new care-giving roles — struggle with insurance paperwork. Minnesota’s insurers denied almost 9% of long-term care benefit payments in 2022, the second-highest rate in the nation, according to the National Association of Insurance Commissioners (NAIC). It also denied 24% of claimants in their first attempts to qualify for benefits, up from 20% in 2018.

Emswiler encouraged reviews with brokers so people pay for plans that match their needs and understand their limits. Some plans offer cash benefits while others only cover boarding in nursing homes. Most have waiting periods before they pay out, and require nursing assessments to prove that people need help with daily living before they receive benefits.

Felker paid premiums for 20 years, because she took in foster children but didn’t have children of her own who could step in as caretakers — like she did for her mother, and her mother did for her grandmother. When dementia made it unsafe for her mother to live alone, Felker moved in with her, and arranged for nursing students to rent rooms at her house and bathe and clothe her.

She said she was proud that she “made it possible for mom to live in her beloved home for the rest of her life” but didn’t want to present the same financial or care-giving challenges to loved ones. She taught grade school and lived several years in a convent, but eventually amassed savings by managing rental properties and financing the purchase and renovation of houses.

Felker and Lundquist discovered it wouldn’t be easy to access long-term care benefits, even after Felker started to forget daily tasks and suffered auditory hallucinations after being injured in a fall. The nurse who assessed her needs told them to expect an automatic denial.

Even after an attorney helped them gain approval, the couple waited months for benefits, and considered taking out a loan to keep up with the nearly $6,000 monthly cost of care at Sunrise Senior Living in Edina. They sued Transamerica four days after it missed its own deadline to make overdue payments.

“She was down to, ‘I can’t pay my rent,’” said Elizabeth Wrobel, one of Felker’s attorneys. “That piece of it was infuriating,” because the insurer at that point simply wasn’t paying claims it had approved.

Transamerica did not respond to a request for comment.

The Commerce Department issued a $100,000 fine in 2019 to Transamerica, partly because it took too long to deny claims, didn’t inform people why it was issuing denials and delayed payments even when it approved claims. A $500,000 fine followed in 2022 because the company hadn’t corrected its problems. Pacific Life similarly received a $250,000 penalty last fall after it was accused of switching Minnesotans to new policies without considering their needs or factoring in additional or hidden costs.

Lawmakers debated last fall whether long-term care insurers should be subject to the same “bad faith” penalties imposed in Minnesota courts on other insurers that dupe consumers.

Ann Okada in testimony accused Transamerica of “stonewalling” her 97-year-old mother, sometimes requiring documents by fax or denying receipt of time-sensitive information. The family spent $43,000 on memory care before a lawsuit compelled the insurance company to pay.

Scott Ziehl of Clear Lake, Minn., bemoaned how Prudential denied benefits after sending an underqualified nurse who made mistakes in assessing his mother’s needs.

“Eventually, Prudential paid ... but it was nearly six months after [she] should have received the payments,” he said.

Insurers opposed the legislation, arguing it would drive up costs, and it did not advance.

Spokespeople at Genworth and Prudential did not respond to interview requests for this story.

Two long-term care insurers, SHIP and Penn Treaty, have folded or needed bailouts because they didn’t have the cash to cover expected payouts.

Only 4% of Minnesotans have traditional long-term care insurance. Others have opted for cheaper hybrid policies, which allow people to siphon benefits from their life insurance if they need long-term care. Most Minnesotans have no coverage, meaning they will need to spend savings on care needs until they qualify for publicly-subsidized Medicaid long-term care benefits.

The state spent a projected $3.3 billion in 2024 on the long-term care of about 100,000 elderly and disabled residents. Both numbers are expected to rise. One Minnesota lawmaker has proposed a payroll tax, already in place in Washington state, to finance long-term care for state residents. The proposal has gained little momentum.

Felker is happy at Sunrise, and enjoys eating and visiting with her friends and going for walks. Lundquist said he felt relief this spring when payments arrived, but nervous because Transamerica had only approved them for 12 months and would soon decide whether to extend Felker’s benefits.

“The history that we’ve had with them over the last year,” he said, “really is not encouraging.”

This time, good news arrived in the mail: Felker’s benefits will continue into May 2025.